How can a company have negative net worth?
If a company make losses year after year, its accumulated profits can get wiped out. If it continues making losses further, even its paid up capital can get wiped out. When this happens, we get negative net worth. This means that shareholders money is completely wiped out and the accumulated losses exceed the profits earned (if any) in the past and the capital invested in by the shareholders. We identify “chronic loss making PSU” as those central PSUs which have negative net worth. The list is topped by the Fertilizer Corporation. It has accumulated losses of over Rs 10,000 crore. In 2004 it made a net loss of Rs 1,110 crore. If the problem is that of sacking workers, then it’s easy to just pay them – the wage bill is only Rs 3.33 crore – and privatise the rest of the firm. Similarly, the Hindustan Fertiliser Corporation has accumulated losses of Rs 8,542 crore. In 2004 it make a net loss of Rs 951 crore. It employs 68 workers and pays Rs 4.95 crore as salary.
